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Nicola Borri Publications

Publish Date
Working Paper

We propose a new non-linear single-factor asset pricing model π‘Ÿπ‘–π‘‘ = β„Ž( 𝑓𝑑 πœ†π‘–) + πœ–π‘–π‘‘ . Despite its parsimony, this model represents exactly any non-linear model with an arbitrary number of factors and loadings – a consequence of the Kolmogorov-Arnold representation theorem. It features only one pricing component β„Ž( 𝑓𝑑 πœ†π‘–), comprising a nonparametric link function of the time-dependent factor and factor loading that we jointly estimate with sieve-based estimators. Using 171 assets across major classes, our model delivers superior cross-sectional performance with a low-dimensional approximation of the link function. Most known finance and macro factors become insignificant controlling for our single-factor.